OTTAWA — Canada's economy is showing surprising signs of resilience, but the outlook for sustained growth is still clouded by events outside our borders.

The latest evidence that a recovery could indeed be gathering strength came Wednesday from the manufacturing sector. Shipments of factory goods increased far more than expected in March, bouncing back from an equally surprising contraction in the previous month.

But the finance minister tempered that optimism Wednesday, warning the debt crisis in Europe could yet "create a shock that will affect Canada."

"Our banks are strong but we're not completely immune from the state of the global economy," Jim Flaherty told a Senate's banking committee, as Greece's never-ending debt crisis held sway over financial markets yet again.

The European Union is Canada's largest trading partner after the United States, with the United Kingdom the No. 3 destination for our exports.

"No one can say for sure what will happen ... if Greece ultimately leaves the eurozone," said Douglas Porter, deputy chief economist at BMO Capital Markets. "No one is really sure what the fallout from that will be. Suffice it to say, it won't be pretty."

In its report, Statistics Canada said factory shipments rose 1.9 per cent to $49.7 billion in March. That was the largest advance since September 2011 and followed two consecutive monthly declines. Many economists had expected factory sales to grow by a meagre 0.3 per cent in March.

"Not much to rant about with this report," said Jimmy Jean, an economist at Desjardins Securities. "While it is still early to pinpoint March GDP (gross domestic product), this gain supports the view for a strong rebound during the month."

Canada's economy contracted by 0.2 per cent in February. It's still unlikely that growth will match the Bank of Canada's forecast for a 2.5 per cent gain for the first quarter of 2012.

But the manufacturing report "does indeed suggest that the economy bounced back nicely in March after that surprising dip in February GDP," said Porter.

Wednesday's factory data from was the second upbeat report in the past week, following on strong job gains Friday that marked the biggest two-month employment gain in more than 30 years.

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Meanwhile, a report released Wednesday suggested that Canada's increased reliance on oil exports is not hollowing out Central Canada's manufacturing base — a phenomenon known as Dutch disease.

The report, from the Institute for Research on Public Policy, found that cyclical factors and global competition is mostly to blame for the decline in factory production in Canada over the past decade, as opposed to commodity exports driving up the currency and hurting manufacturing.

March's rebound doesn't settle the question, but suggests the recent softness was due to temporary factors.

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In its report Wednesday, Statistics Canada said March factory sales were up in 13 of 21 industries tracked by the federal agency, with gains in seven of 10 provinces, accounting for more than three-quarters of the manufacturing sector.

Sales of petroleum and coal products rose 4.5 per cent to $7.5 billion — the highest level since July 2008 — mainly due to higher sales volumes at many oil refineries.

In the chemical industry, sales were up 3.2 per cent to $3.9 billion, with most manufacturers reporting higher sales. The transportation sector was also stronger, with motor vehicle sales rising 2.3 per cent and aerospace increasing 9.9 per cent.

Postmedia News

With files from The Canadian Press

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Canada's economy shows surprising resilience

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